Arbitrage Magazine - June 2022 - Finance & Investment Club | IIM Rohtak

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Presents

June 2022 Vol 5 Issue 10

Our Best Read: ‘Finverse - A Game Changer’ Special Mention – ‘RBI’s payment guidelines on tokenization’

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INDEX

S. No.

Article

Page No.

1

Finverse- A Game Changer

3

2

RBI’s payment guidelines on tokenization

9

3

Digital Credit & BNPL Services

12

4

Crypto Investments – Risk Assessment & Dynamic Portfolio

16

5

Automation in Banking Sector

21

6

Introduction of Digital - Currency: A Way Forward

25

7

30

8

Analysis of UBI Experimentation on COVID-19 Economic Revival in the Indian Paradigm The Role of Start-Ups in Transforming India into A $5 Trillion Economy

9

Rise of the Indian Digital Economy

37

10

Emergence Of FinTech Companies in India

42

33

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Finverse- A Game Changer By: Bhuvaneswari B (UNOM, DOMS) Recently, KIAVERSE country’s first banking metaverse was floated on june, 2022, by KIYA.AI – a pioneer in digital solutions provider. Functionaries they have concentrated are in three domains in the banking industry. Namely, Peer Avatar, RoboAdvisor and Relationship Manager, work is underway to stkep in tokens and NFTs. This paved the way to venture more financial opportunies in Metaverse.

METAVERSE: Metaverse is a three-dimensional, immersive virtual platform where users can interact with each other using AI-powered avatars in a highly realistic virtual environment. It is the platform where virtual worlds are linked each other. Futuristic technology combines the artificial intelligence and real time interactions. Haven’t born with any precise definition the metaverse consist of three features.

• a sense of immersion • real-time interactivity throughout • user agency with varied functions.

Complying in single note, Meta universe-Metaverse gives a sense of interoperability and harmonizing thousands of activities simultaneously.

In 197MUDI -the first multiplayer virtual world forms the beginning of the Metaverse. Now we have the popular metaverse platforms like Fortnite, Roblox, Mine craft, Decentraland

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Blocks of Metaverse: At the bottom Metaverse need three components to work on:

1. Content: it is the virtual experience that encapsulates the user. It is stimulated from both user and creator. eg: latest BTS music display.

2. Platform: it is the channel where the point of contact occurs between the user and creator. E.g.

Roblox, Zepeto 3. Infrastructures: as the name suggest it holds for the mechanics that are needed for the Metaverse to work. It consists of hardware(glasses), software (block chain), and pool of venturing.

The last one added is enabler, this deals with the real time issues like security, privacy etc.

“We’re trying to not define the metaverse so rigidly that it limits the imagination of creators,”– Yosuke, Matsuda, CEO of Square Enix4 Market opportunities and Landscape of investments: The technological progress is witnessing the spurt of investment already. According to a report by Mckinsey, the investment in Metaverse has crossed $120 billion now in 2022, which is greater than the double of what it had in 2021 which was about $57 million. This constitutes the whole of technological companies, start-ups, M&A etc.

Techy giants include Microsoft, Apple, NVidia. The breakthrough is Facebook changing is name to meta- trying to create a shear dominance of market.

Venture Capital: We have Open Sea – a NFT marketplace raising $300 million, this led by paradigm and coatue. The sandbox has investing of $93 million from Softbank. Other players include Horowitz, yuga labs.

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Along with them, the other sectors that are planning in adopting the metaverse also involved in investing to hold the digital market.

The spurt of investment can be attributed to technological advances namely formulation of 5G, edge computing, hardware development that gets the physical and virtual worlds closer.

Finverse- Finance Metaverse Financial solutions that will be made easier by use of metaverse include: Digital wallet: Raise in the investment of cryptocurrencies and NFTs can be easily facilitated with the help of metaverse as they are research prospectus are high. New intruders in this sector include PayPal. Super app by PayPal as envisioned to become a digital wallet. Techies who rolled in include Rakuten, it has come up with 7-Eleven.2 a new service of crypto currency.

Data mining: Around the world, we see some financial institutions are involved in buying platforms in metaverse to build their branches. Eg. KB Kookmin Bank of SK has built KB FINANCIAL TOWN, which is intend to offer advisory services to the customers across various services.

Meta verse is huge platform for data sources, so financial institutions should build their base before their customer. In some metaverse, the customer can buy in-house currency which forms a source of commerce. E.g., currency include Robux for Roblox, zem for Zepteto.

Digital financial solutions: Developing financial solutions for the Gen z. Credit optimisation is the most important aspect when dealing with the GenZ. The financial companies are keen in responding to this.

Banking:

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The sustainability of financial institutions in web2.0 is far more different than web3.0. Metaverse encapsulates gaming, cryptocurrencies, NFTs and other digital assets. the interoperability of financial institutions increases with addition of sectors to it. So, the financial sector is need of new model that will lead them in the metaverse world. Many institutions have already started it. Eg HSBC bought The Sandbox –concentrating on e-sport enthusiast. Zelf,119neobank has launched METAPASS for their gamers, Sokin, TerraZero are other new ventures.

Other opportunities Financial sector should upgrade itself in order to exploit the interoperability across the platform.

From both customer side and platform side there is a huge gap for the operating the commerce.

This gap when utilised by the financial companies in a wise way, will help them in taking a leap and making them a market leader.

Creating a transparent and structured ecosystem. The alternate universe is solely controlled by the technology, it urges the stakeholders to create a transparent ecosystem. To sustain, beyond advertising, metaverse need to seek more area for revenue generation, this in turn necessitates the creation on rules and regulation that will be provided by the financial institutions.

Being a part of stabilized NFT ecosystem Ahead of customers: Tailing from branch banking to mobile banking, the banking as followed the customers, so its mandatory that it should be in a position to follow them in this new platform.

Moreover, finance sector should be should be prepared for this strategic move, as it will serving the futuristic customers GenZ and Millennials. Projection report gives a metaverse a highly

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promising industry to venture its been Highlighted with rise up to $12.5 trillion by 2030 (Goldman Sachs.)

Challenges to sort out: Having projected with great profit potential, the industry also has barriers to get through.

Swallowing a huge sum as an investment, the return on investment is still blind. We don’t measure or standardisation that will assist calculating the return of investment The deficiency of business model that we can rely on.

Still structuring the managerial capabilities that will help onboarding the business in metaverse technology In need of infrastructure that can endure the raise of virtual platform

To conclude: The virtual world which is under construction is all set to rule the world. Reports being inclined towards its growth, the pool of investment in enoremous. In this scenario, the financial sector should updrade itself to compete with other sectors.

Areas which can spread out are summed up below: 1: Helps in Marketing- create digital branches, raising the brand and credibility to next level.

2: Developing hybrid infrastructure by formulating digital IDs, digital payments.

3: Venturing into cyber insurance; as, in near future it will become a common place to work with.

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Reference: 1. The metaverse as a strategic inflection point (visa.com) 2. Value-creation-in-the-metaverse.pdf (mckinsey.com) 3. https://www.pwchk.com/en/financial-services/publications/the-metaverse-whatbusinesses-need-to-know-jun2022.pd 4. Impact of the Metaverse on financial services | The Financial Express

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RBI’s payment guidelines on tokenization By: Piyush Gupta (Symbiosis centre for management and human resource development) It has been more than a month since Russia, under Vladimir Putin, launched a full-scale military invasion of Ukraine to escalate the tensions brewing between the two nations since 2014. As a result of the unfortunate turn of events, Ukraine is witnessing its biggest refugee crisis since World War 2, and more than 2.8 million people have fled Ukraine. However, the wrath of the war is not limited to both nations but is being faced across the world.

Ukraine is a significant exporter of agricultural products, so its supply has been adversely impacted. In addition, investors are limiting their investment to their home countries, which has declined the global capital flows, coupled with sanctions on financial flows, which have worsened the impact on the financial market and private investments.

The investment climate has become unfavorable, and the capital inflows have declined, and so have the stock markets. The Balance of Payments may experience a deficit. The private sector would not be incapable of boosting itself. The public sector would have to play a significant role.

Moreover, the world is experiencing deglobalization, which may adversely impact export earnings.

Global vaccine inequity will grow under the pretext of the national requirement. When the world is yet to win, the war against Covid is genuinely devastating.

TIMELINE Russia and Ukraine have had hostile relations since the 2014 ‘Revolution of Dignity. In November 2013, Ukrainian President Yanukovych decided not to sign a political association and free trade agreement with the EU. He was met with violent protests and eventually ousted from power.

In 2014, Russia invaded and annexed Crimea. Rebels backed by Russia seized Donetsk and Luhansk, collectively called the Donbas region.

Minsk peace accord was signed by both the nations later to halt the violence in east Ukraine, including Donbas. The agreement has been criticized for containing extremely vague terms that provide ample scope for the benefit of the doubt.

Lately, Ukraine's bid to become a NATO member has been the prominent bone of contention. In January 2021, Ukrainian President Zelensky urged US President Joe Biden to make the nation a part of NATO, angering Russia. It began sending troops near the Ukraine border. The US warned of grave consequences. Russia demanded a legal guarantee that NATO would not conduct military activity in East Europe. On 24 February 2022, under Vladimir Putin, Russia launched a full-scale military invasion of Ukraine to escalate the tensions brewing between the two nations since 2014.

Most of the NATO members are EU members and thus have joined the USA in imposing sanctions against Russia.

The government of India has sought to promote cashless payment in India, but the transition had been gradual for several years. However, with the onset of the pandemic, digital payments have soared up exponentially to become a requirement if not a necessity, but on the hind side of this

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development, cybersecurity has become a paramount concern. RBI’s ‘safe, secure, and affordable’ mantra has been losing a piece of the puzzle even after bringing multiple regulations to secure digital payments. In 2020, cybercrimes have proliferated four times with reference to 2016, according to the National Crime Records Bureau. Save for the effect of such data on the reputation of the giant entities involved in the payment chain, it hurts the hard-earned money of the consumers and most importantly their trust in going online.

A successful card transaction on any merchant website requires a card number, cardholder’s name, expiry date, and CVV. As per the old norms, there were not any restrictions on online merchant establishments saving some of these details on their server; unfortunately, during data leakages, such sensitive data fell into the hands of fraudulent individuals/institutions. Unable to assure security on an individual level as they are stored out of the regulator’s purview, RBI passed a regulation on 7 September 2021 that from 1 January 2022 no entity involved in the payment chain bar card issuer (Banks/NBFCs) will be able to store complete card data. Such entities can store limited data for reconciliation or tracking purposes; for example, the last four digits of one’s card number.

It might have cut the ease of doing transactions as one had to punch in all the details while doing a transaction on the site they frequent every single time if it was not for the other snippet in the regulation that reads out the blessing in disguise for the customers — the concept of card-on-file tokenization (CoFT). Raw card details can be encoded against alphanumeric ciphertext (tokens) by algorithms made by authorized card networks, which will be unique for each combination of card, merchant site, and device (laptops/phones/wearables), though it will require two-factor authentication.

In a traditional transaction, the card number of the customer is sent to a payment processor, and then gets stored in the merchant’s POS (point of sale) terminal. But in a tokenized system, the data is first sent to a tokenized system where a combination of characters is assigned against it (called a token), and then it is returned to the POS terminal and the payment processor can carry out the transaction. And this is what makes tokenization different from encryption: tokens cannot be decrypted outside the tokenization system as they do not hold any mathematical relationship with the original card number. Hence, tokenization ensures hackers never get hold of the entire card details of the cardholder.

The central bank expects the entire payment ecosystem to be ready to transit to new technology by 30 June 2022. And yet, even after stalling the deadline again (1 July 2022), about 29 banks are yet to implement the back-end software for smooth recurring payments. The existing tokenization solutions have limited transaction throughput (the number of transactions done per second) and high latency (the time taken for completion of a transaction). Merchants within MPAI are yet to achieve a two-digit success rate. Sadly, the most impacted ones — merchants and users — have very little say in the matter. The lack of a skeleton model on how such transactions are going to play out is what the entire conflict is predicated on. The market has not found the change very welcoming yet. A popular case in point is that Apple Inc. has already stopped using credit cards and debit cards for subscription and app purchases using Apple ID in India. One had to add cash to her Apple ID wallet to avail such services.

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The technology overhaul RBI expects banks to undertake is fairly complicated, and adoption of the same without completing all stages of testing can create problems in transparency, success rates, speed of transaction, and the number of transactions that can be performed per second. But none of them are indefinite problems and can be solved with further extensions. The unanswered question is that if RBI will give further extensions to merchants to retain customer card data.

Because without a fully functioning back-end system, banks will have to brace themselves for a barrage of complaints from customers and merchants.

Not to forget that the right to not get her card tokenized will remain with the cardholder even after the new regulation kicks in. A merchant cannot force a customer to generate a token. But if one chooses to get tokens then they can set a limit on each token, limit as in the number of daily transactions and transferable amount. To provide tokens, card issuers cannot charge any amount.

However, interests, taxes, and renewal fees will be charged as they do today.

Now, what positive note does the regulation has on the plate for customers? A token generated on someone’s Amazon account cannot allow a transaction on Netflix even if it’s the same card.

Vulnerable data will be protected under the umbrella of CoFT. RBI’s bucket of intentions regarding preventing these compromises is very welcomed in a long run but the hole is in the implementation, more particularly, the haste behind these improvements.

Looking several years into the future, CoFT can prove to be revolutionary. Online mode of payment will see a major upswing as the faith of cardholders goes up and hence better the retention of online customers. Zoom had to pay $85 Million to U.S. users after major cybersecurity breeches as it did not have the claimed end-to-end encryption so cost penalties in form of lawsuits will go down and companies will be able to retain their cashflows after the CoFT becomes the new normal.

If we are listing the benefits CoFT has in store for us, we shall not miss out on the security it will provide to the internal team of the company and the employees. Faster and more convenient payments will drive digital transactions in the coming time, and CoFT can offer just that after further improvements. Tokenization shall not limit to credit cards but also can help secure any personally identified information like passwords.

Heavy expenses to build the back-end infrastructure, limited time to bring up the standard technology, and the complexities involved in the whole process in the short term are some of the hurdles to be overcome. If responsible individuals work in sync honestly, CoFT can be the next big thing like the NPS (National Pension Scheme) or maybe even bigger.

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Digital Credit & BNPL Services By: Sudhanshu Aggarwal (SJMSOM, IIT Bombay) Introduction Financing services in India have expanded dramatically in the last 24 months, particularly following the implementation of COVID-19. Digitization, higher merchant adoption, increased repeat usage among younger customers, and an expanded number of operators targeting point-ofsale loans, sometimes known as "buy now, pay later," are driving expansion. Pay later systems have emphasized customer-centricity, transparency, and flexibility, attracting millennial and Generation Z customers.

New Player 'Buy Now, Pay Later (BNPL)’, the much-touted youngster in the Indian lending arena over the past several months, is being chased by digital lenders (with or without NBFC licence), NBFCs, and banks. BNPL is a vital instrument that enhances the consumerist boom by offering a digital credit card experience, designed to assist the underprivileged and unserved segments of the population and the new generation oriented on quick gratification. There are barely three crore unique credit card holders in the Indian market (approximately 3 per cent of its total banked population), allowing the BNPL section to expand. According to a new RazorPay study report, the BNPL market in India will grow by more than 637 per cent by 2021. The category had gained 569 per cent in the previous year.

BNPL vs Credit Card A BNPL card and a credit card both provide clients with the convenience of payment alternatives with varying degrees of flexibility, such as – 

Hidden Charges – Customers want credibility and transparency in their transactions, which are severely lacking with traditional credit cards. Different transaction costs such as yearly maintenance fees, cash advance fees, GST taxes etc. act as deterrents against credit cards.

BNPL, on the other hand, typically uses a transparent and low-cost pricing model & hence is entirely open.

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

Completely Digital & Instant Sign Up – The BNPL service is entirely digital, online, and immediate. It is simpler and faster to apply for and receive approvals. Credit cards, on the other hand, take weeks and much paperwork to obtain.



More Flexible & Accessible – Credit cards are accessible to high-CIBIL clients, those living in cities, and salaried individuals. BNPL is intended for a significantly larger market, including first-time credit customers and those with poor credit history.



Higher Interest Rate – Missed payment interest rates on credit cards can go up to 48%, whereas BNPL firms charge between 0% and 24%, depending on the merchant, duration, and borrower.

Growth Drivers of BNPL Leading firms such as Uni, Slice, and LazyPay have gone further, partnering with banks and introducing real cards to enhance touchpoints and attract a more extensive user base. The following factors further contribute to the growing popularity of BNPL services – 

Practical – BNPL suppliers are fully integrated into the checkout of an online business, making the transaction procedure simple. A hassle-free automatic procedure of dividing the purchases to different payment plans helps the customers.



Payment Plans Spread Out – Customers are typically served by BNPL providers that divide the whole amount of the bill into three equal monthly payments, for example. They are automatically charged to the customer's designated debit or credit card when they are due.



Completely Digital & Engaging – Customers are also backed by a highly engaging app that provides customers with insights into their monthly spending, a seamless interface, and guaranteed cashback, making them a popular choice among new-age customers

The perks of BNPL, including fast registration, ease of use, and quick checkout, appeal directly to digital-savvy, card-averse clients who want quick and handy modest credit at their fingertips. The behavioural shift among millennials opens handy possibilities for businesses. They, too, benefit from the following advantages of BNPL – 

Engagement Solutions in Purchasing Journey – The significant providers are evolving into shopping apps; customers are beginning their trips within the BNPL Providers' applications rather than only utilizing them at merchant checkouts.

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

Newer Revenue Generators – As BNPL providers increase engagement and access in prepurchase journeys, merchants are beginning to see a growing share of the revenue from affiliate marketing and advertising versus pure-play financing.



Low Consumer Acquisition Cost – As more customers sign up for these applications at checkout and improve their involvement, BNPL providers assist merchants in monetizing this highly engaged base by cross-selling traditional items and increasing earnings from advertising and affiliate marketing.



Growth in AOV and Repeat Purchases – Because customers incur no upfront costs when utilizing a BNPL product, businesses have seen an increase in AOV. If the merchant has the leading BNPL suppliers at their checkout terminal, the customer's intensity and stickiness rise.

Disadvantages BNPL plans, like any other instalment plan, may be beneficial if utilized wisely, and users can comfortably make instalments. However, the fact that one in every five customers is delinquent on their BNPL payments implies that everything is not well. So, these are the main drawbacks of BNPL programmes – 

Promote Impulsive Spending – The most serious concern with BNPL platforms is that they may be perceived as encouraging impulsive purchasing. Customers may take their product home before they have even put a dime down with BNPL agreements. That might be seductive, causing buyers to realize they did not want or need the goods but now had to pay for them.



Late Payment Penalties – Late payment fees are a significant source of income for BNPL suppliers. Customers will be charged late penalties if they do not have enough money in their bank accounts to make the automated instalment payment.



No Leeway in the Payment Date – BNPL suppliers often do not enable customers to choose the day on which their payments are made, which puts them in danger of incurring further credit card bills or having their BNPL payment go through.



Adverse Effect on Future Loan Applications – If customers cannot make their BNPL payments, their personal credit rating may suffer. This would impact their ability to obtain a mortgage, a vehicle loan, or even a credit card in the future.

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Conclusion Choosing whether or not to employ BNPL arrangements is a personal decision depending on one's financial circumstances and spending habits. If clients utilize BNPL platforms for spending that they would otherwise undertake, it may be a powerful tool for managing money by spreading the payment over a few weeks. However, if they are already a problem spender with difficulties paying repayments, they may exacerbate an already terrible position.

Market analysts are divided on this issue. Some believe BNPL is a sham and will fail. Many believe it is the future since it caters to India's young demography. The authority is particularly concerned about BNPL since a few lending businesses have provided credit lines to customers without their prior approval. This not only impacts their credit ratings, but it is also technically a loan that the consumer never took in the first place. More significantly, the youth are utilizing BNPL to better their lifestyles rather than fund their livelihoods. However, the hard fact is that the BNPL sector must develop a successful business plan and cannot rely just on valuation hype. As a business concept, there is no such thing as a free lunch or 'easy money—it must be paid for!

References [1].

https://economictimes.indiatimes.com/industry/banking/finance/buy-now-pay-later-or-

party-now-worry-later-decoding-the-latest-finance-fad/articleshow/86931186.cms?from=mdr [2].

https://www.mckinsey.com/industries/financial-services/our-insights/buy-now-pay-later-

five-business-models-to-compete [3].

https://economictimes.indiatimes.com/industry/banking/finance/banking/digital-

payments-led-to-rise-in-the-buy-now-pay-later-model-biz-growth-of-local-mom-and-pop-storesstudy/articleshow/87854676.cms [4].

https://www.financialexpress.com/money/buy-now-pay-later-with-attractive-features-

bnpl-boosts-popularity-of-physical-cards/2482615/ [5].

https://www.financialexpress.com/money/buy-now-pay-later-heres-all-you-need-to-

know-about-bnpl-schemes/2301393/ [6].

https://www.orfonline.org/expert-speak/bnpl-the-regulatory-conundrum/

[7].

https://www.plum.com.au/news-information/news-updates/pros-and-cons-of-buy-now-

pay-later-products [8].

https://www.investopedia.com/buy-now-pay-later-5182291

[9].

https://www.cuinsight.com/the-pros-and-cons-of-bnpl/

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Crypto Investments – Risk Assessment & Dynamic Portfolio By: Karan Raj Singh Mann (Hindu College, DU) RISK ASSESMENT: A COMPARISON WITH OTHER ASSETS The price volatility of the crypto market is well known and therefore the risk of investing into crypto currencies must be factored in while deciding on the proportion of crypto holding with respect to the entire portfolio value if investors decide to diversify among different asset classes.

The assets that are to be used for risk assessment of Bitcoin find their place under traditional financial assets like equities. Considering the popularity of these assets and rising interest towards Bitcoin amongst both individual and institutional investors it is fair to estimate risk in crypto by making a comparative study of price movements across different time frames.

Bitcoin has been used as a representative of the Crypto market since it is the most widely traded crypto currency and commands significant dominance in the crypto market i.e., most crypto currencies follow the direction of price movement of Bitcoin.

The equity market is to be represented by famous US stock index named S&P 500 which serves as perfect benchmark for measuring performance of US stocks as it is composed of 500 largest listed companies in the US stock market.

The reference price used for both the assets through 2019-2021 has been taken for all the twelve months every year in order to capture price movements throughout the year. The price points for every month are taken from mid-month value which is 15th day of every month.

Bitcoin Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2019 3537 3888 3972 5319 7998 9277 10536 10315 10484 8076 8481 6877

2020 8808 10371 5346 6876 9795 9475 9236 11566 10394 11374 15315 23476

2021 40257 46453 55888 55696 36735 35840 31786 44675 47753 60333 63621 48878

2019 2670 2775

2020 3329 3380

2021 3768 3906

Table 1 S&P 500 Jan Feb

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2822 2905 2859 2886 2976 2888 3007 2986 3120 3168

Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2711 2874 2863 3097 3224 3372 3319 3483 3585 3709

3913 4185 4173 4166 4327 4441 4432 4471 4697 4620

Table 2 For the above data set on prices in Tables 1 & 2 correlation has been established using Pearson’s correlation coefficient formula. All values have been taken in terms of US Dollars.

The coefficient of correlation for the above data stands at 0.9165 indicating that both the Bitcoin prices and the S&P 500 index prices are highly & positively correlated to each other. From this data two conclusions can be made; one is that the risk in Bitcoin can be somewhat assessed through study of equity price movements in the long run. The second one is that high correlation between equity markets and crypto markets indicates that crypto prices are highly vulnerable to the trends prevailing in the equity markets. However, investors can always choose to study equity market risks and business cycles to somewhat predict price movements in the long run for the crypto market.

INVESTING IN CRYPTO: PORTFOLIO ANALYSIS The research moves further into a detailed analysis of a crypto portfolio. The portfolio taken under consideration for the analysis is a sample portfolio consisting of popular crypto currencies. Cryptos in this portfolio enjoy the interest and confidence of individual investors and corporations when we look into the real-world developments surrounding these.

The sample portfolio is made up of:      

Bitcoin (BTC) Ethereum (ETH) Cardano (ADA) Ripple (XRP) Sandbox (SAND) VeChain (VET)

Criteria for Portfolio Selection

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Old Crypto BTC ETH ADA XRP SAND VET

New Crypto

* * * *

Large Cap

Mid Cap

Use Case

* * * *

DeFi

Smart Contracts

Virtual Reality

* *

Env. Sustainable

*

*

* *

* *

* *

Table 3 The data on prices has been collected from crypto exchange platforms Binance and Coinbase. The prices have been taken for the months of December and June for the last four years. This has been done to capture price movements both at half year and at year end. The price data for December has been taken around the last week of the month. The price data for June has been taken around first week of the month for simplification and standardization purposes.

This data is not representative of the entire crypto market as different portfolios behave differently.

However, crypto currencies used in this portfolio are of significant importance and offer a diversified view into the market as well. Fig 1.1 shows the price movement of Bitcoin while Fig 1.2 and 1.3 show price movement of altcoins. The price trajectory clearly shows significant price gains in most of the crypto currencies in the long term except Ripple which has shown sudden sharp decline but is on its way to recovery.

Bitcoin 50000

USD

40000 30000 20000 10000 0 Bitcoin

Fig 1.1

J17

D17

J18

D18

J19

D19

J20

D20

J21

D21

2548

12839

7616

3780

8104

7218

9750

23718

37581

46471

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USD

Ethereum 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Ethereum

J17

D17

J18

D18

J19

D19

J20

D20

J21

D21

221

748

578

136

267

126

240

626

2691

4049

Fig 1.2

Other Altcoins 7 6

USD

5 4 3 2 1 0

J17

D17

J18

D18

J19

D19

J20

D20

J21

D21

0

0.41

0.22

0.04

0.08

0.03

0.07

0.16

1.84

1.33

0.3

2.1

0.67

0.38

0.43

0.19

0.2

0.34

1.02

0.82

Sandbox

0

0

0

0

0

0

0.06

0.03

0.23

6.07

VeChain

0

0

0

0

0.007

0.005

0.006

0.02

0.09

0.09

Cardano Ripple

Fig 1.3 In the above analysis it is understood that the sample portfolio has gained significantly in terms of price movements thus delivering great investment returns. Bitcoin delivered a CAGR of 37.93 % whereas Ethereum delivered a CAGR of 52.53 % over the course of four years. Other altcoinsCardano grew at a CAGR of 34.2 % while Ripple fell at a CAGR of 20.95 %. Although Sandbox and VeChain are new crypto currencies still they managed to grow at a CAGR of 20133.33 % (in 1 year) and 324.26 % (in 2 years) respectively. These figures also indicate the movement of investor interest from Bitcoin to Altcoins. If we take a look at the combined price movement in the form of a portfolio then the portfolio value stands at $ 2769.3 in June 2017 and at $ 50528.31 in December 2021. The compounded return over this period of 5 years stands at 1724.58%.

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A PERSPECTIVE: LONG TERM PORTFOLIOS OUTPLAY SHORT TERM CRYPTO CYCLES AND LOSSES RELATED TO THEM The crypto market is very popular for being a highly volatile market with gains and losses surpassing every other asset class. In the process of repeating trade cycles in the short term this market creates a long term trendline along which long term investors can end up with enormous gains. This perspective arises from the underlying study about price movements in different time frames. In Table 4, I have analyzed price movements of constituent crypto currencies in the portfolio designed and explained in the previous study about portfolio analysis.

1 Month

3 Months

1 Year

2 Years

4 Years

Bitcoin

(19.65)

6.03

95.93

543.82

261.95

Ethereum

0.14

38.19

546.8

3113.49

441.3

Cardano

(16.87)

(42.17)

731.25

4333.33

224.39

Ripple

(17.17)

(13.68)

141.17

331,57

(60.95)

Sandbox

(12.91)

911.66

20133.3

-

-

VeChain

(25)

5.26

350

1700

-

Table 4 *All values are in percentages *Negative values are written in brackets. *Certain values are missing since these crypto currencies were not found in that time frame The sample price for calculation has been taken from the December 2021 price mentioned abovein the graphs under the study on portfolio analysis.

The table acts as clear evidence on volatility in the market and the difference between long term and short-term portfolio holdings. Holdings for 1-3 months have resulted in huge losses to investors however the same holdings at constant prices of calculation have generated huge gains to the long-term investors.

REFERENCES 1. Price Data, Cryptocurrencies, https://www.binance.com/en 2. Price Data, Cryptocurrencies, https://www.coinbase.com/ 3. Price Data, Cryptocurrencies, https://www.coingecko.com/ 4. Price Data, S&P 500, https://www.cnbc.com/quotes/.SPX

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Automation in Banking Sector By: Naman Anand (Great Lakes Institute of Management, Gurgaon) What is Automation?

Automation is the use of technology for tasks which will require less human intervention. Any industry that deals with repetitive tasks can benefit from automation, while it is more prevalent in the manufacturing, robotics, and automotive industries as well as in the IT world, particularly in IT systems and business decision software.

Automation is crucial for managing, updating, and fine-tuning both the IT infrastructure and how business activities are carried out. Automation facilitates change, freeing up time and resources for firms to focus on innovation. The automated enterprise seeks to finish work faster. In turn, this leads the IT specialists to focus on bigger issues, find solutions, and turn them into routine tasks that can be automated.

One of automation's key benefits is that it increases productivity while improving system dependability and governance. Nearly all businesses will move their data to the cloud in the near future, which not only offers storage with quick access but also guarantees zero downtime when utilizing the data, enabling access to it from anywhere at any time. A cloud-based model is becoming more popular in the financial industry as well, as banks and other financial institutions use the services to store client information, transactional data, and account management information together with real-time analytical insights for integrated data-driven finance.

Scalability

Speed to Market

Increased Efficiency

Benefits of Cloud Disaster Recovery

Reduced IT costs

Competitv e Edge

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The need of Automation for Banks Evolution has become a requirement. Fintech firms that have formed their operations around new technologies are posing a growing threat to today's banks, which can no longer rely exclusively on brand recognition. The global pandemic accelerated consumers’ desire for digital banking channels, putting pressure on financial institutions to quickly move to a digital-first model.

According to PwC’s 2020 Consumer Banking and COVID-19 Survey, about a quarter of consumers say that the pandemic has made them more likely to use their bank’s website (27%) and mobile app (23%) as well as online mobile payment apps (26%).

Every industry is undergoing rapid changes. This requires financial institutions to deal with erratic market conditions, constant pressure on already thin profit margins, and shifting consumer trends.

In addition to minimizing expenses and following stringent regulations, it calls for developing new revenue streams and services. On the other side, these obstacles give banks a chance to expand on what works and improve on what doesn't. Thanks to the rising adoption of contemporary technologies across the industry, finance now has the possibility to accomplish much more than just balance the budget. It may be crucial in promoting digital transformation. Banks and other financial services organizations may keep their data and applications in the cloud and use cuttingedge software there, according to leaders in the banking and capital markets, who are starting to realize that the cloud is more than simply a technology.

How Banks are leveraging the use of Cloud Model The new Fintech companies are synchronizing the enterprise with numerous cloud platforms, including AWS, Microsoft, and SAP as these provide services that enable the integration of the entire organization into one business unit and solve the problem of communication between various departments. It enables better business unit integration through data exchange, integrated decision-making, and responding more rapidly to customer issues. The speed of decision-making is increased by developing shared datasets and fostering team communication through new platforms and technologies.

Adopting the cloud involves new working methods and new people due to connecting the tech with the business divisions. By putting more emphasis on the user experience, businesses can adapt more swiftly to market changes and shifting financial objectives.

The overwhelming amount of data on bank servers, which causes latency and datacenter crashes, is one of the reasons why practically all banks are implementing the cloud model. By providing solutions under the Disaster-as-a-Service (DAAS) paradigm, the Managed Service providers enable these services to their clients under a Single Level Agreement (SLA) that guarantees total security of the customer data.

Things to be kept in mind during cloud adoption Banks have a stricter mandate than other industries when it comes to security, system availability, and auditability as part of regulatory compliance management. As a result, security and compliance are crucial elements of cloud infrastructure. Banks must involve their security, risk, and compliance teams from the very beginning of their cloud journey when deciding on cloud

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architecture, defining platform-level and application-level controls, and choosing the best options for security automation.

Cloud access can assist banks in being more innovative by enhancing agility, efficiency, and production. Additionally, it can help banks refocus their budgets so that instead of spending money on maintaining IT infrastructure, they invest it in innovation and the fast supply of services to markets. The usage of the cloud can lessen risks associated with traditional technology, such as those related to capacity, redundancy, and resiliency problems. Additionally, banks may have more control over issues like security because to the scalability of cloud computing.

The right choice of model

Private Cloud

• Secure,Scalable & Greater User control • Expensive & Suitable for Large organizations

Public Cloud

• Affordable,reliabe & Easily scalable • Seemless monitoring with zero maintainance

Hybrid Cloud

• Easy customizable with greater control • Suitable for medium-size enterprises

An example of PNB Housing Finance using the Analytical tools in their Business Intelligence department can help us understand how simplified the process can be. From a large database of customer’s information containing their name, address, contact number and transaction history, the source systems extract and transform the data which is converted into meaningful insights via MySQL and Excel and the transferred to business use via Tableau. Through this, the insights gathered are used to design products and services according to the customer’s needs. Banks have the option of either setting-up their own mechanisms of processing the data or rely on the service providers to deliver that.

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“PNB Housing Finance BI Process” In the past, banks have relied on traditional on-premise infrastructure. This rapid shift to cloud technologies leaves significant gaps in knowledge and skill. In the current hybrid environment, banks must work with a managed services provider and have understanding of both on-premise and cloud systems. Investing in people and skills can offer a long-lasting competitive advantage.

Financial institutions should select service and delivery models for cloud computing projects that best satisfy needs for operational flexibility, cost reductions, and pay-as-you-use models.

References 1. https://www.oracle.com/in/industries/financial-services/banking/modernization/ 2. https://www2.deloitte.com/za/en/pages/financial-services/articles/bank-2030-financialservices-cloud.html

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Introduction of Digital - Currency: A Way Forward By: Maanav Rathore (IIM Indore) A central bank digital currency or CBDC is the digital form of country’s fiat currency that only exists in electronic form. The adoption of CBDC, as outlined in Budget 2022 will spur a plethora of changes in the existing monetary system. CBDCs, if well designed and broadly implemented, has the potential to become a parallel means of payment. It might function as a stimulus for further innovation and competition in payments, finance, and commerce in general. However, apart from payments, CBDC might have repercussions on monetary-policy and financial-stability. CBDC in addition to improving current monetary-tools, could also engender new channels by steering deposit-interest rates, distributing helicopter-money, or, in extreme instances, granting private-sector loans. This new toolbox has the potential to impact competition in the financialsector by changing the set of parties involved. In order to successfully appreciate the vitality of CBDC it is necessary to have a broader understanding of the need of, opportunities from and challenges of CBDC.

Need for a Digital-Currency It is no doubt that Indian economy is in midst of a profound structural change: one which has been propelled by technological revolution. The digitalization initiative of GOI coupled with the emergence of digital-payments behemoths such as G-Pay and Paytm has completely transformed

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the payments-landscape in India (Chart-1). However, such a transformation has had pervasive ramifications on the future of money itself with major effects being marginalization of cash-use (due to digital-payments) and lack of universal-access to the banking-system. These, in addition to the impending need to harness technological-developments to overcome problems of cash use and utilize new avenues promised by digital-currencies, have necessitated the introduction of digital-currency in the payments landscape.

Friedman argued that provision of a stable monetary-framework is an essential prerequisite for the effective operation of a private market-economy. Such an ideation precludes entrustment of a monetary-framework with the market as it is dubious that private considerations will not interfere with the stability-of-framework. This, coupled with the inherent challenges of private digitalcurrencies (cryptocurrencies&stablecoins) such as instability in store-value, lack of creditability, monetary-sovereignty and governance-issues behooves that, if digital-currency is to exist, the RBI should play a pivotal-role. It is in this vein that the introduction of CBDC by RBI is a welcome measure: a progressive move which harnesses technological-innovations to provide general public the access to state-guaranteed means of payment and foster financial inclusivity. In this context, taxation of cryptocurrencies, as the GOI did, is the befitting course-of-action to reduce the cryptocurrency trail and citizens exposure to it.

DIGITAL CURRENCY: WAY FORWARD The prominent idea of money as economy’s memory, as argued by Narayana Kocherlakota; entails that any form of money should have two characteristics: it should maintain integrity&safety of payment-system and assure finality-of-payments. Application of such a structure leads to two facets in the road for designing of digital-currency – firstly, operational architecture of digitalcurrency should ensure safety&integrity in payments and secondly, such a system of access should provide finality in transactions. This understanding of digital-currency has pivotal implications on the way forward with implementation and structure of CBDC in India.

Attainment of aforementioned objectives hinges on the CBDC-design that RBI choses. Broadly, there are two types of CBDC designs: account-based design, which entails verification of identity of transactors and token-based accounts, which entails validation of object being traded. The choice, of one of these designs, harks back to the ideation of money as memory and the ineluctable need to verify the transactions and establish identity of parties to maintain integrity of monetary-

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transaction. Since, it is essential to have identification of parties and traceability of transactions to maintain integrity, CBDC being completely anonymous is unconceivable. Hence, CBDC design must entail some facet of identification.

Considerations such as payment of interest and accessibility to the masses also influence the selection of the design. If token-based CBDC is adopted by RBI, then more people can be included in the ambit of CBDC payments as it can be traded seamlessly offline. However, if the obverse is chosen then online-connectivity is required as account-based transactions could not be executed without the system remotely validating the identity of the account holder and his balance. If CBDC is to be included under the ambit of monetary-policy-framework, then account-based CBDC should be the preferred choice. By intermediation of repo and interest rates on the tokens, the RBI could control the supply and demand and supply of digital-currency, much like the bank-deposits today. In case of zero-lower-bound, when monetary transmission fails, account-based CBDC could be a better alternative as RBI could charge negative-interest rates for depositors (not possible in current scenario as people withdraw deposits from bank). However, if token-based system is chosen then such structuring is not feasible as payment of interest will change the value of token itself. Deliberation of these considerations determine the befitting choice of CBDC structure that RBI should adopt.

CBDCs, if well designed and broadly implemented, has the potential to become a parallel means of payment. It might function as a stimulus for further innovation and competition in payments, finance, and commerce in general. However, apart from payments, CBDC might have repercussions on monetary-policy and financial-stability. CBDC apart from improving current

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tools, could also engender new channels by steering deposit-interest rates, distributing helicoptermoney, or, in extreme instances, granting private-sector loans. This new toolbox has the potential to impact competition in the financial-sector by changing the set of parties involved. While CBDC might be particularly helpful in situations of zero-low-bound, policy-failures, reducing blackmoney-holdings, increasing monetary-transmission, it might unravel novel-obstacles for monetary policy. Due to its innate nature CBDC can increase cross-border-payments and disrupt international-payments-system. This will have tremendous impact on India’s monetary stability as Balance-of-Payments and currency reserves will get affected. Hence, for any way forward with CBDC implementation, the RBI must necessarily balance these possibilities.

While, CBDC can be harnessed by RBI to effectively pursue policy imperatives such as efficient and safe payment systems, financial inclusion, improving financial integrity by enhancing visibility and tracking of transactions, reducing illegal-activities and eliminate costs of issue, storage and distribution of cash; the way forward requires a discreet consideration of technical aspects, economic ramifications and legal issues. In authors view the introduction of CBDC is a welcome step. The author believes that fully replacing either bank accounts or cash is neither desirable nor feasible in the current scenario. This warrants such a structure and design of CBDC, so that commercial-banks and private-sector are also involved. CBDCs should be an additional payment option that coexists with private-sector digital payment systems and cash. Careful design – defining the roles of RBI and private-intermediaries – would ensure that two-tiered financial system is preserved, and that monetary-policy implementation and financial-stability is not be jeopardized. Given the nascent stage of CBDC in India, coupled with aforementioned, it is better to have an account-based CBDC with intermediary (permissioned) DLT. Any way-forward with the RBI digital-currency should address three important concerns - firstly, there is no disintermediation of banks – this becomes acutely important due to high NPA’s of public-sector-banks; secondly, RBI monetary policy tools and framework should remain effective, and thirdly, prevention of dollarization of CBDC by other currencies. The structuration of CBDC ledger and incorporating intermediaries will make sure that disintermediation doesn’t effectuates.

Making sure that CBDC only complements (not-supplements) cash and is provided in response to

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transactional-demand preempts the second-situation. For third, the RBI should take a calibrated and befitting approach in response to global and technological-development.

References: 1. https://www.outlookindia.com/business/will-the-rbi-issued-digital-rupee-based-onblockchain-technology-be-a-big-boon-for-india--news-184115 2. https://ieeexplore.ieee.org/abstract/document/9395116 3. https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1111 4. https://www.sciencedirect.com/science/article/pii/S2405959521001399 5. https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/03AR_11022020510886F328EB418FB801 3FBB684BB5BC.PDF 6. https://www.oxfordreference.com/view/10.1093/oi/authority.20110803095835792 7. https://www.europarl.europa.eu/cmsdata/150761/TAX3%20Study%20on%20cryptocurre ncies%20and%20blockchain.pdf 8. https://www.bis.org/speeches/sp210127.pdf 9.

https://www.livemint.com/opinion/columns/rbi-must-address-three-important-questionsbefore-digital-rupee-launch-11645643679681.html

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Analysis of UBI Experimentation on COVID-19 Economic Revival in the Indian Paradigm By: Ramdinthar and Vidushi Sharma (University of Delhi) The world has met an unprecedented catastrophe in terms of the COVID-19 pandemic. The year marks the downfall of numerous industries, recessionary trends in economies and astronomical increase in the unemployment and inflation rates. Anthony Fauci, renowned specialist in infectious diseases, has stated that reopening too fast risks causing uncontrollable outbreaks.

Furthermore, State Bank of India (SBI) research predicts a contraction of over 40 percent within the GDP in Q1 FY21. For the states, the entire loss because of COVID-19 is estimated at 13.5 percent of the entire Gross state domestic product. The Ministry of Statistics released India's GDP estimates for Q4 FY20 at 3.1 percent while the GDP for FY20 is 4.2 percent. India’s ongoing GDP losses are likely to be approx $5-10 billion (0.15 - 0.35 percent of GDP), as per data. With quite a 20 percent cut in benchmark indices; the Indian equity market has entered market territory. New coronavirus has also driven investors to bid up bond prices, leading to yields in major economies to inch lower. While other commodities are down, gold has gone up as a result of the demand for a secure haven in uncertainty.

The World Health Organization (WHO) on 12th March announced the recent outbreak of the novel coronavirus disease (COVID-19), a pandemic , crumbling away Rs.11.4 trillion of shareholders' wealth. The Indian economy traces parallels with the under developed and developing economies like Brazil, South Africa, Sri Lanka, Spain, African economies, Greece etc. The June 2020 Global Economic Prospects defines both the immediate and thus the near-term outlook for the pandemic's effects and therefore the long-term harm it's caused on growth prospects. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020, using market rate of exchange weights—the deepest global recession in decades, considering the unprecedented efforts of governments to fight the slowdown with fiscal and monetary policy support. The deep recessions caused by the pandemic are projected to leave permanent scars over the longer horizon by lower investment, the loss of human resources by lost jobs and education, and therefore the fragmentation of worldwide trade and supply .

In addition, the COVID 19 pandemic continues to paralyze economies causing innumerable job losses worldwide, countries are starting to consider adopting UBI. A Universal Basic Income (UBI) may be a regular fixed cash outgo provided by the govt – or another institution within the public sphere – to each citizen or resident, no matter whether he or she is rich or poor and/or wishing to be engaged in paid employment (Raventós, 2007). The thoughts of a basic income are often modified during implementation by fixing the sum as within the above definition or making it unconditional.

The UBI appears to be the panacea of economic turbulence. It's numerous merits, including its potential to strengthen personal freedoms, particularly by providing a more diversified range of labor arrangements. It also has the potential to empower people, especially the vulnerable (e.g. women, LGBTQIA+ etc.) and the poor. It will further reinforce the efficiency of welfare programs alongside strengthening collective unity and cooperation.

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In 1986, James Buchanan received the Nobel Prize for his development of the contractual and constitutional bases for the theory of economic and political decision-making. James Buchanan (1997) found that when a basic income policy is combined with a flat tax, ought to be more averse to experience the ill effects of lease problems compared to other forms of welfare state policies.

As per the definition, “self-interest” means what people consider to be in their own self-interest and there are a wide range of self-interests. It is recognised that money would encourage individuals to advance their interests, and gain new alternatives. Hence, political leaders will respond to incentives in predictable ways. As economist Paul Heyne (1987) says, “Even Mother Teresa does better with more money”.

Reasons for implementation of UBI accumulated from the results are summarised below:● Fighting Technological Unemployment It paves a way for people whose job has been taken away from them due to artificial intelligence. UBI would serve as a kind of safety net for the millions of people left unemployed due to the tech revolution. ● Businesses are down It gives support to the unemployed and companies who lost their businesses and are in financial crisis. Especially during this time of the pandemic, economies have been shut down. In order to deal with widespread unemployment and decrease in wages, a universal basic income is the optimal solution. ● Unemployment factors Research shows that the longer one is unemployed, the longer it takes to find employment.

With the help of UBI, they would be able to find new jobs, and contribute to the economy faster with a basic income. ● Contract tax complexities In order to minimize disincentives, the UBI helps a government to cut welfare spending, and reduce the complexity of the tax, and welfare system. ● Supporting unpaid care workers Many with sick or otherwise eligible members are frequently required to leave their jobs to take full-time care of them. UBI will encourage care staff to support themselves, facilitate home care work, and relieve pressure on public services that provide sick, and elderly care. ● Enhanced income securities Workplace innovation may be increased as individuals would have greater income security, and be more likely to take risks. ● Accumulation of diversity, and choice in field of employment Individuals are often reluctant to shift across jobs due to a fear of the lower opportunity cost as of the existing job. Furthermore, the lingering uncertainty of not being able to find a suitable job in time and long transition periods prevent individuals from efficiently using

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their skills. Hence, choice is not often included in job selection obstructing diversity, and hence, causing deadweight loss and hampering productivity.

The epidemic period has left devastating wounds on the global economy, and it is far from over.

Many organisations, like the Centers for Disease Control, and Prevention and the World Health Organization, have warned of an impending pandemic. For a recovery to occur, an efficient, effective, and extraordinary fiscal policy is essential. Consumers choose tolerable solutions, and options above perfect options. As a result, the consumer prefers satisfactory answers to ideal alternatives, and they choose to take actions that are beneficial to them. Therefore, they prefer actions that yield benefits now rather than in the long term. As a result, as other public finance and package programmes produce long-term outcomes, UBI appears to be a better alternative because it produces positive, and desired results in the short term. The world's largest free market economy, the United States of America, has likewise recognised the necessity for economic packages to get the country back on track. This not only reinforces the idea of public finance but UBI as a particularly efficient, and preferred policy choice to metamorph the economy from rags to riches.

This flow of income induces an initiative, and incentive in individuals to provide a more conducive environment for the development of the existing resources. The definition of basic income sounds disappointingly easy, but in fact, as you dig deeper, it's like an iceberg with much more to show.

The big picture price tag in the form of investing for even higher returns in human resources, and its impact on what really motivates us are only glimpses of these depths. Debts appear to plummet.

Entrepreneurship appears to be growing. Further studies are yet to discover other results.

References: 1. https://medium.com/working-life/why-should-we-support-the-idea-of-an-unconditionalbasic-income-8a2680c73dd3 Scott Santens Jun 2, 2014 · 2. https://www.scottsantens.com/the-cost-of-universal-basic-income-is-the-net-transferamount-not-the-gross-price-tag Scott Santens July 07, 2017 3. https://www.huffpost.com/entry/why-should-we-support-the_b_7630162 Scott Santens 06/26/2015 04:06 pm ET 4. MLA style: Press release. NobelPrize.org. Nobel Media AB 2021. Sun. 24 Jan 2021. https://www.nobelprize.org/prizes/economic-sciences/1986/press-release/ 5. Data from the State Bank of India, Ministry of Statistics, World Health Organization, Center for Disease Control, WORLD BANK. 6. The World Bank (2020). The Global Economic Prospects, June 2020. Washington DC: World Bank. DOI: 10.1596/978-1-4648-1553-9. License: Creative Commons Attribution CC BY 3.0 IGO. 7. https://udyamimitra.in/page/Subsidy-Schemes 8. https://thewire.in/books/abhiji-banerjee-esther-duflo-ubi-excerpt-nobel-prize; The wire; 15/OCT/2019 9. https://www.povertyactionlab.org/evaluation/effects-universal-basic-income-duringcovid-19-pandemic-kenya; J-PAL

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The Role of Start-Ups in Transforming India into A $5 Trillion Economy By: Ankit Jain and Ayesha Malhotra (Great Lakes Institute of Management, Gurgaon) India: A $5 Trillion Economy?

By 2024-2025, the central government has set a high target of becoming a $5 trillion economy.

This was assured during their election campaigns and then reaffirmed by the NITI Aayog through their flagship initiative, the Atal Innovation Mission (AIM), and the Economic Survey 2018-19, which was submitted in the Rajya Sabha's monsoon session. It will be a difficult target to achieve, primarily due to the recent economic crisis around the world. The Indian economy will have to grow at a quick rate of 12% CAGR to reach the $5 trillion threshold.

Importance of start-ups to the Indian Economy The unicorn wave in India has reached an all-time high. India's 100th unicorn start-up has a total worth of $332.7 billion. The current downturn in the Indian economy could be attributed in part to a credit crisis caused by a lack of funding for nonbanking financial businesses (NBFCs) and the banking system's ongoing battle with non-performing assets (NPAs). The investment cycle has almost completely broken down as vital liquidity has been drained out of the system. Traditional firms are deferring new investments since they rely on banks for a large number of their planned capital expenditures. Here, start-ups are thriving and playing an essential role in not only sustaining but also driving economic growth. There has been no shortage of capital going into the start-up sector, which is upsetting the way established firms operate by launching companies in fields such as Fintech, Agritech, EdTech, and HealthTech.

India is currently ranked third in the global start-up ecosystem, with the rise of 'Unicorns,' or companies valued at more than $1 billion. There are currently 100 unicorns that have produced 6.5 lakh employment. In the Indian context, start-ups play a critical socioeconomic role. Today the start-ups are constantly innovating by leveraging emerging technology like AI, data analytics, machine learning & cloud computing to address challenges of high supply chain cost, inefficient trading practices, lack of access to financial services, and ineffective health care infrastructure, and lack of access to the same among other things. These novel start-ups are responsible for bringing businesses, producers, and consumers closer.

Agriculture, education, insurance, and other start-ups are all assisting in the resolution of structural issues that established corporations have been unable to address. With the start-ups spreading to all parts of the country and not limiting to only Tier 1 cities, they are beginning to be more inclusive. These start-ups are successfully assisting in the elevation of the rural part of the country, a problem that the old industries and government haven't been successful at solving. Micro, small, and medium enterprises (MSMEs), India's second-largest employment sector after agriculture, are benefiting from fintech companies. MSMEs, who have historically struggled to secure credit from traditional banking institutions, with MSMEs accounting for only 6% of total loans, have recently discovered new avenues of formal funding through fintech firms. MSMEs have added 13.5 million to 14.9 million jobs per year over the previous four years, according to a recent survey by the Confederation of Indian Industry (CII).

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Image 1 shows the role of the start-up ecosystem in India

Government as a Driving Force The government has launched various efforts in recent years to encourage the growth of business and skilled labour. Those activities have now begun to show some favourable results. This strategy is aided by financial and procedural help, Skill India, and online learning and development programmes. The country's continual changes have helped it move to 63rd place in the "ease of doing business" survey, up 14 places from last year. However, a new-age government support structure for new-age enterprises is now required.

1. Create vehicles for start-ups to expand internationally:- Bangalore is the only city in the world to make Genome's top 20 list, despite having the world's third-largest start-up economy. To encourage start-ups to expand globally, the government can step in and organize exchange programmes and collaborations with nations, industries, and organizations. Advantageous trade rules, information exchange and collaboration platforms, and tax incentives to expand abroad are some of the methods used to assist businesses. Entrepreneurs must cultivate a culture of ambition, which can only be accomplished by exposing people to global marketplaces, exchanging ideas, and analyzing the potential for success in untapped markets.

2. Filling the white spaces in the value chain:- India is significantly reliant on imports at various places throughout the end-to-end value chain. For example, despite the fact that India manufactures 95% of its mobile devices, $13 billion in mobile component imports was required. This is due to a lack of experience in producing high-value components. This is comparable to the situation in the late 1990s and early 2000s when India was known as the world's "call centre" capital. India advanced from a knowledge process outsourcing powerhouse to a global information technology hub as a result of opportune reforms.

3. Breeding a culture of innovation:- The government and the private sector can help build a culture of creativity and collaboration by collaborating with international universities and funding research and development.

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Image 2 shows where India stands in the growth of start-ups Conclusion: With a goal of becoming a $5 trillion economy, India must focus more on building innovative business models and leveraging digital technology to generate and provide value to customers in a seamless, inventive manner.

With digital technologies continually evolving, the ability of ecosystems to stay up and evolve is critical. Governments, private businesses, infrastructure, and service providers can go above and beyond the norm by combining innovative data collection techniques with analytics, automation, artificial intelligence, and vertically plugging operations. Customers are served with complete solutions in a separate digital environment through data-driven services and integrated platform solutions that optimize consumer contact and access. However, widespread data use creates serious concerns about cybersecurity and data privacy, necessitating the creation and maintenance of digital trust as a top priority.

FinTech has grown drastically in the recent decades, affecting industries across sectors as well as the general public in a variety of ways, propelled in part by the government's push for financial inclusion in underprivileged communities. FinTech has developed substantially as a result of fast advances in computing and network infrastructure. Building a modern financial infrastructure in a country with such linguistic and demographic diversity is difficult.

For India to reach a $5 trillion economy, it needs to revolutionize the existing practices across all sectors from education to logistics making it more relevant and convenient and leveraging upcoming technologies like automation and the Internet of Things (IoT).

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References 1. Anonymous. (2019, December 7). Start-ups to play key role in making India a $5 trn economy: Suresh Prabhu. Business Standard. Retrieved from: https://www.businessstandard.com/article/pti-stories/start-ups-will-be-key-in-india-becoming-usd-5-trneconomy-prabhu-119120700846_1.html.

2. Kaushal, B. (2019, October 3). Can Start-ups help India achieve the $5 Trillion goal by 2025?.

Entrepreneur India.

Retrieved from: https://www.entrepreneur.com/article/340345.

3. KPMG. (2019, November). Fintech and start-ups fueling India’s USD 5 trillion economy.

KPMG. Retrieved from: https://assets.kpmg/content/dam/kpmg/in/pdf/2019/11/fintechstart-ups-economy-inclusion.pdf.

4. Kumar, S. (2020, January 14). New Technologies for a New India: The making of a $5trillion economy.

Forbes India.

Retrieved from: https://www.forbesindia.com/blog/economy-policy/new-technologies-for-a-new-indiathe-making-of-a-5-trillion-economy/.

5. Pai, T., & Holla, N. (2019, October 16). Start-ups are rewriting India’s economic roadmap, will lead India’s march to $5 trillion GDP. Yourstory. Retrieved from: https://yourstory.com/2019/10/start-ups-india-economy-five-trillion-dollar-gdp/amp.

6. Poovanna, S. (2019, October 1). Start-ups key to $5 trillion goal: Modi. Livemint.

Retrieved from: https://www.livemint.com/news/india/innovation-start-ups-will-helpindia-become-a-5-trillion-economy-pm-modi-11569829778404.html

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Rise of the Indian Digital Economy By: Aadim Aryavartta Meher and Nidhi Kiran (IMI, New Delhi)

The traditional definition of an economy is the activities associated with the production, distribution and consumption of goods and services within a region. Since the dawn of man, this definition has held true until the rise of the new era driven by the additional combination of the digital medium and technological infrastructure. This new economy formed out of the growth of technology and digital activities is what we call the digital economy. Deloitte defines it as “The economic activity that results from billions of everyday online connections among people, businesses, devices, data, and processes.” This digital economy is primarily based on the activities and businesses conducted on the internet and the World Wide Web. Hence, it is also known as the Internet Economy, New Economy, or Web Economy.

With the increased dependency on the internet and rapid digitalization, everyone is connecting various aspects of their lives including the way we shop, interact, work and exchange goods and services with it. India currently has over 658 million internet users, up from 137 million in 2012.

India has a very huge young population accounting for ~65% whose age is less than 35 years and so the government is introducing various initiatives to make them digitally literate. Before the outbreak of the pandemic, India was on its way to becoming 3rd largest economy by 2026 as it showed a significant increase in the Ease of doing Business Index and saw a surge in FDI investments as well. But after the pandemic, these projections and growth have to be reconsidered.

On one hand, the pandemic has affected every sector, on the other the presence of people on online platforms has increased during this period.

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At the start of 2022, India’s Internet penetration rate stood at 47% of the total population and there was an increase of about 34 million internet users between 2021 and 2022. A report by EY states that the PE/VC investments in the Indian internet and e-commerce witnessed 370% y-o-y growth in 2021. This shows that India currently possesses enough technological infrastructure to handle the basic requirements of such tech startups and shows signs of growth in the future.

So how did India’s digital economy rise so much, so fast? The past 10 years witnessed an exponential level of technological innovation globally. But technology alone was not enough; there had to be enough digital infrastructure, online businesses, people willing to interact and transact digitally, and the number of people connected to the internet among other things.

With the entry of e-commerce giants like Amazon and Flipkart, people slowly began accepting the then unconventional model of online shopping. Witnessing the success of these first movers, many businesses started popping up in the e-commerce space and then the tide spread across other industries like wildfire.

With the arrival of navigation maps, ad sense and enhanced digital marketing capabilities, these businesses started utilizing the full strength of the internet, empowering the Indian digital economy along the way. Brick and mortar stores started extending their presence through the internet, hyperlocal delivery became a norm and soon people’s mindsets also started changing towards online shopping and digital interactions.

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But it was not until the disruptive year of 2016 that things really turned up for the Indian digital economy. In 2016, UPI was introduced and it challenged the traditional way of paying via cash by introducing an internet-enabled easy-to-use digital payments system. The Indian banknote demonetisation of 2016 gave people a very big reason to use UPI for their day-to-day transactions.

Soon, it began to gain traction across the nation and as of May 2022, over Rs. 10 lakh crores worth of transactions took place via UPI. Along with all this, India’s telecom industry witnessed a major disruption when Reliance Jio launched its 4G network across the nation and a significant price war began in the industry. The hyper-competitive state of the telecom industry resulted in a notable decline in data prices. So much so, that India now has amongst the cheapest data prices in the world. This hugely boosted the digital economy in the country as more and more people began actively using the internet.

Digital wallets emerged, UPI integrated with other payment apps like GPay, PhonePe, PayTM, etc. and it became even easier for people to make online transactions. India’s digital economy was picking up the pace.

Fast forward to 2020, the world was hit by the COVID-19 pandemic. Many economies trembled under the pressure, including the Indian economy. Data reveal that for the first time because of the pandemic the number of people who remain unconnected to the internet dropped below 3 billion which marked a milestone in the world’s journey towards bridging the digital divide.

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On the one hand, during the lockdown, the average internet time increased to 7 hours a day which led to a surge in the use of e-commerce platforms, social commerce, OTT platforms, live streaming, online gaming and many other digital programmes. On the other, there was a slight fall in the average time spent on social media platforms as people embraced a variety of new activities over the past two years.

This pandemic has been a major catalyst for increasing the number of internet users as people started staying at home and without any access to the outside world, more and more content was created and consumed which resulted in a great surge in e-commerce platforms. People became dependent on digital platforms for their day-to-day needs which gave rise to new problems and ultimately some innovative young firms like Zoom, Urban Company, Pharmeasy, etc. stepped in with solutions.

Another program that deserves a special mention in contributing to India’s digital economy is the “Digital India Initiative” launched by the Government of India to ‘transform India into a digitally empowered society and knowledge economy’. Some of the key initiatives under this program are Aadhaar, DigiLocker, MyGov, BharatNet, Smart Cities, BHIM UPI, RuPay, GSTIn, Universal Access to Mobile and Public Wi-Fi Hotspots, etc.

Over the years, these initiatives have helped improve the digital infrastructure and have greatly increased internet penetration, especially in rural India. The various digital services under this initiative have proved to increase administrative efficiency and helped in streamlining and integrating various programs. It has helped reduce the huge digital divide in India and has been largely successful in delivering digital services and internet access to the citizens of India.

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Additionally, the Union Budget 2022 aims to implement various digital initiatives like Central Bank Digital Currency, Digital Universities in various Indian languages, the introduction of epassports, Desh Stack e-portal to promote digital infrastructure, rolling out of the 5G service network, etc. which will further empower and strengthen India’s digital economy.

A combination of all these situational circumstances, technological developments, digital initiatives and the immense contribution of various central bodies and businesses made it possible for India’s digital economy to rise to such an extent. According to industry estimates, India's consumer digital economy is expected to be a US $800 billion market in 2030, registering a 10x growth from 2020. Also, as prominent surveys by McKinsey and others predict, the productivity unlocked by the digital economy could create 60 million to 65 million jobs by 2025, many of them requiring functional digital skills. The development of the country’s digital economy is paving the path for India toward a cashless economy in the future.

References: 1. https://www2.deloitte.com/mt/en/pages/technology/articles/mt-what-is-digitaleconomy.html 2. https://www.ey.com/en_in/e-commerce/india-s-consumer-digital-economy-a-us-800bdollar-opportunity-by2030#:~:text=According%20to%20industry%20estimates%2C%20India%27s,investment s%20in%20the%20year%202021 3. https://www.ibef.org/government-schemes/digital-india 4. https://www.digitalindia.gov.in/ebook/MeitY_TrillionDollarDigitalEconomy.pdf 5. https://unctad.org/system/files/official-document/der2021_en.pdf 6. https://datareportal.com/reports/digital-2022-india 7. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1565669

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Emergence Of FinTech Companies in India By: Ishita Bhatia and Pallav Gupta (SCMHRD) Overview The term FinTech was first coined in the 21st century to describe the technology that is being used in the back-end systems of established financial institutions. Today, however, FinTech bridges across various sectors, including education, retail banking, investment management, and much more. With the help of the latest software and algorithms, FinTech companies help businesses across different domains and individuals manage their financial operations.

Recent High Growth and Upcoming Potential India being one of the fastest growing economies in the past few years, has emerged as one of the fastest growing hotspots for FinTech start-ups. Paperless banking, mobile banking, online payments gateways are some of the concepts that are highly adopted in India. Apart from this, the adoption of online payments system has been a massive change, that the country has seen in recent years. Even the deadly pandemic acted as a catalyst for the FinTech industry, as people were trying to avoid the conventional methods of payment and were more inclined towards online payment for their purchases. Another factor for such exponential growth for the sector is the availability of smartphones and the high-speed internet among the general public. In fact, if we refer to the report

by Boston Consulting Group and FICCI, India is poised to achieve a FinTech sector valuation of USD 150-160 billion by 2025, implying that there is a potential value creation of USD 100 for the sector. According to the report, to achieve this goal, the sector will need an approximately investment of USD 25 billion over the next few years. Even the honourable Finance Minister, Nirmila Sitaraman, said that the valuation of India’s FinTech industry is expected to surge to USD150 billion by 2025 from the level of USD50-60 billion seen in 2020.

Contribution of Digital India to FinTech According to the report ‘Decrypting the FinTech gold rush in the new normal’, India is clocking the most minutes in-app per session for FinTech applications. That is, in 2021, Indian users averaged 17.38 minutes per session. Further, around 81 per cent of applications installed in 2021 were payment apps; banking came second with around 10 per cent, followed by stock trading and crypto at 6 per cent and 3 per cent, respectively.

As per RBI data, INR 2,326.02 crore digital payments were recorded in FY19, which increased to INR 3,400.25 crore in FY20. By FY21, the volume of digital transactions in India had increased to INR 4,374.45 crore. Data by RBI indicates that the sharpest growth of all has been seen by UPI, which accounts for nearly half the volume of digital payments. The numbers also indicate increasing adoption of digital payments owing to growth in various sectors such as telecom, healthcare, IT, retail, automobile and agriculture.

According to the report by Boston Consulting Group (BCG), in collaboration with PhonePe, titled, “Digital payments in India: A US$10 trillion opportunity”, the value of digital payments in India is set to increase three-fold from US$3 trillion today to US$10 trillion by 2026. The report stated

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that digital payments will constitute nearly 65% of all payments by 2026, up from 40% todays and UPI adoption will surge from 35% in FY21 to 75% in the next five years, contributing to 7x growth in digital merchant payments - from US$ 0.3-0.4 trillion today to US$ 2.5-2.7 trillion by 2026.

A closer look into Indian FinTech It is a well-known fact that the baking industry acts as a gateway for payment in India, but as more and more advanced technology is catching up with the sector, this no longer appears the case and a weak monopoly of the banking sector is quite evident. In recent years, there is a substantial improvement in the infrastructure of payment and settlement systems in India, particularly due to the introduction of Immediate Payment System (IMPS), Unified Payment Interface (UPI), Bharat Interface for Money (BHIM), and NEFT & RTGS being available for 24x7x365. Even the government’s Make in India and Digital India initiatives have provided a significant boost to growth and accelerated adoption of the new system. By pushing electronic payments, the RBI has also done a commendable job in recent ages. The government actions such as Demonetization and GST have also been a factor in the substantial growth of the paperless ecosystem. Though being quite chaotic and messy for common people, it did drive people towards cashless environment of electronic, digital and technology-driven systems which in turn boosted the already existing FinTech and also attracted more individuals to start new businesses in the FinTech domain. And finally, the Covid pandemic, being deadly for the common, acted as a boost for the sector as more and more people moved towards cash-less system.

What next for FinTech Right now, there are 6,386 FinTech companies in India and the current market capitalization of the sector as of 2021 by BLinc Insight is USD 31 billion. In India, the FinTech sector is expected to grow with a compound annual growth rate of 22% for the next 5 years, and it currently stands as the third largest FinTech ecosystem in the world, behind the US and China. Of the total 6,386 FinTechs, 28% are in investment tech, 27% into payments, 16% into lending, 9% into banking infrastructure, and 20% are into other fields. Although the Global FinTech market is growing at the rate of 23.4 % on year, India still remains an untapped market due to lower penetration of financial services. According to the report, 14.6% of the Indian population remains unbanked compared with that of 5.4% in the US (2019). Only 20% of the SMEs have credit access, while insurance and mutual fund penetration in India continues to be low.

According to the Affle’s report on ‘Decrypting the fintech gold rush in the new normal’, India is clocking the most minutes in-app per session for FinTech applications. That is, in 2021, Indian users averaged 17.38 minutes per session. Further, around 81 per cent of applications installed in 2021 were payment apps; banking came second with around 10 per cent, followed by stock trading and crypto at 6 per cent and 3 per cent, respectively.

Sequoia, Accel, Tiger Global, Softbank and Y Combinator are among the top 30 fintech investors in India and they have put billions of dollars into direct-to-consumer fintech companies for the chance to serve the currently-unprofitable Millennial customer. According to a bi-annual report on fintech investment trends by KPMG’s Pulse of Fintech, India almost matched its total fintech

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investment in 2020, with $2 billion in investment in the first half of 2021. India has attracted $2.7 billion in fintech investment in 2020.

Globally, the overall global fintech funding across mergers & acquisition (M&A), private equity (PE) and venture capital (VC) deals were at a new high with funding increasing from $87 billion in H2’20 to $98 billion in H1’21, across 2,456 deals.

To summarize the whole of it, India's FinTech system has a long way to go. India's economy can count on this sector for a significant contribution in the next five years. More investments and credit flow are expected in the FinTech industries.

References 1. Reserve Bank of India data 2. BCG and PhonePe, ‘Digital payments in India: A US$10 trillion opportunity’ 3. Affle’s Mass, ‘Decrypting the fintech gold rush in the new normal’ 4. Boston Consulting Group and FICCI, India FinTech: A USD 100 Billion Opportunity

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